Monday, January 17, 2005

Seven years ago President Clinton said we needed “to save Social Security for the 21st Century.” A year later, in his State of the Union address, he announced a plan to "save" Social Security and fund a new type of retirement savings account. Now, even though nothing was done, Democrats say that Social Security is OK and that retirement savings accounts are a bad idea. What changed?

The Editor of the ICO does not think there is a Social Security crisis. He said its trust fund will last until at least 2042. The trust fund, as we all know, is full of Treasury Bonds (government IOU’s) to replace the surplus funds that the general fund “borrowed” and our government spent. Senator “Fritz” Hollings, D-S. Car., says Social Security is being destroyed because the trust fund has been “looted.”

Just what are these government IOU’s in the trust fund? Back in my CPA working years, we called bonds “liabilities,” because they must eventually be repaid. However, our government puts its IOU’s in a “trust fund” and calls them “cash” (an asset).

Just how is the government going to use the trust fund to pay Social Security obligations when cash outflow exceeds inflow in 2018? There are very few options. Taxes could be raised, general fund expenditures could be cut, or borrowing increased. Also, the Social Security tax rate could be increased, benefits cut, or retirement age increased. The point is, one or more of these options have to start in 2018, not 2042. And the second point is, each and every one of these options hurts economic growth and personal savings. The final point, Social Security still is not saved, just extended on life support.

Next week, saving Social Security with personal retirement accounts, just like the ones government employees already have.

(Note to Steve: National debt as a percentage of GDP has been higher in the past, and is already coming back down. It, like many other things, is only considered a crisis by Democrats when Republicans are in power.)